ALEX BRUMMER: Banks face an Atlantic divide after years of struggle

Bad debt: Fabrice Tourre is accused of having misled investors in a mortgage security offer

The two faces of Goldman Sachs are to be seen in bright Technicolor at present. In the New York courts the public has been treated to the thoughts and emails of ‘Fabulous Fab,’ the trader Fabrice Tourre who is accused of having misled investors in a mortgage security offer, some of which ended up in the gullible hands of the Royal Bank of Scotland.

And in the financial district there is the GS that has fully recovered from the traumas of the Great Recession, producing doubled second-quarter profits to £1.3bn ($1.93bn). Among the drivers of performance were the profits from investment banking restored to former glory by underwriting of new debt issues.

Goldman joins JP Morgan Chase, Wells Fargo and Citigroup in producing supercharged results. Citi – a bank that held stacks of rotten mortgage assets and bad loans, at least equal to those at RBS, is off the sick list. It has shrunk the rotten stuff in its ‘bad bank’ City Holdings so that it represents just 7 per cent of total assets and has capital strength, under the Basle rules, to die for.

The contrast between the way US banks have bounced back from crisis, while UK banks remain deeply mired with legacy problems, could not be more stark.

American banks are fortunate in that they are operating in an economy that has sprung back to life and started to grow towards trend rates. That definitely assists.

As importantly, however, the US authorities and banks tackled the aftermath of the crisis with a determination that can only be envied.

All the big money centre banks were forced to take government capital (that has largely been paid back) and all responded by ruthlessly cleaning up their balance sheets and placing poisoned assets into separate bad bank entities. This means they are able to ripple muscles and support a recovering economy.

Here in the UK we may be ahead of our Continental counterparts but there is unfinished business.

Barclays, which managed to avoid taking taxpayers’ money, is now deemed to be short of capital as is the Nationwide.

RBS is still in the emergency ward and consideration is being given – five years too late in the mind of many experts – to a good bank/bad bank split.

Lloyds is on the last leg of a recovery programme that might see it return to the public markets soon, but still has to dispose of 632 branches to satisfy regulators.

Capital shortages mean the UK banks are at a considerable disadvantage, both at home and overseas, when competing with the US banks, especially their casino banking arms. Barclays has staged something of a coup by entering the transfer market to recruit Tushar Morzaria as its new finance director, with a package that could earn him up to £6m.

But without the capital needed to expand operations and compete with American rivals, even an import from JP Morgan is unlikely to help.

High price

How worried should we be about the latest uptick in inflation?

It is hard to be complacent when the consumer prices index climbs from 2.7 per cent to 2.9 per cent when wage levels are stagnating and real incomes falling.

But at least Bank of England governor Mark Carney has been saved the job of writing to the Chancellor to make his excuses, as the Bank of England itself predicted in the May inflation report when it saw inflation in June at 3.1 per cent.

The mitigating factors in June were a sharp hike in petrol prices, largely a consequence of turmoil in the Middle East over which the Bank has little control, and a surge in clothing and footwear prices.

The latter largely seems to have been caused by the timing of discounting and sales last year which means prices rose from a low base.

Most analysts expect prices to drift down by year end. The big unknown is the impact of Carney’s forward guidance, to be provided in August, on the value of sterling.

If the pound were to renew the fall, that began after the July meeting of the Monetary Policy Committee, then all bets are off.

Fast fashion

Kate Bostock comes with shining fashion credentials having worked at Next, on George for Asda and more recently at M&S.

There, however, her reputation was somewhat hurt by the long saga over her departure and the failure of womenswear to respond to her delicate attentions.

Her latest career at highly rated online retailer Asos has come to an end after just seven months, which suggests she found the cohort of younger shoppers demanding the latest fashion items the wrong kind of challenge.

It also signals all may not be well within Asos, which has now lost three directors in the last year.